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Incentive Trusts

People sometimes have concerns about leaving an inheritance to a particular child or other beneficiary. They may be worried about this person’s ability to handle it wisely, whether due to age or responsible capacity. Phelps LaClair, with offices in Gilbert and Scottsdale Arizona, has years of experience in estate planning and knows how to provide great plans to avoid future pitfalls. Incentive trusts are plans that can help with concerns about reliability of the beneficiary.

What is an Incentive Trust?

An incentive trust is a document created by a legal representative that will put a trustee in place to hold and manage assets for the benefit of another person. This is a fiduciary relationship encouraging the beneficiary to remain responsible in order to gain their inheritance. Stipulations can be put in place for a child or individual to complete college, obtain a job, or become a certain age before the inheritance is released to them. The desired behaviors of the beneficiary are stated specifically to encourage responsible behaviors, and to deter issues such as addiction.

Does It Work?

It is impossible to predict the future actions or behaviors of a beneficiary. These type of trusts are difficult to draft due to uncertain circumstances in the future, and can be even more difficult to administer. In order to follow through with the drafted incentive trust, the trustee may need to have rigorous involvement. The best way to ensure that it works is to have someone walking alongside the troubled beneficiary to help them build character and responsibility. If they are struggling with drug use, this might look like finding them drug abuse counselors to work through their issues. If they struggle with handling finances, the trustee could connect them with great financial advisor’s to ensure they are putting a healthy plan in place for the inheritance.

An incentive trust may be the plan you need to help encourage positive behaviors in your beneficiary. It is important to recognize the amount of work that can come along with it, but an incentive trust may be beneficial both for protecting your assets as well as for protecting the individual(s) from themselves.

To discuss options for creating good working relationships with your trustee, beneficiaries, and all involved in the estate planning process, contact Phelps LaClair today! We not only are passionate about great planning for your assets, but also great planning that protects everyone involved.

Images used under creative commons license – commercial use (11/1/2017) Tax Credits (Flickr)

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